RGJ in depth: There's gold in that green marijuana

Julie Hornsby has debilitating nerve damage and hopes to see dispensaries in the Reno area soon. This video looks at her life and at Blum, a dispensary in Oakland Calif., that is similar to what Reno's dispensaries could look like.
Liz Margerum/RGJ

There's a new gold rush in Nevada, all centered around a green plant.

Sometime in the spring of 2015, Nevada's medical marijuana industry will be open for business. Doctors say medical marijuana will help patients with cancer, chronic pain, post-traumatic stress disorder and other ailments.

Others see the green in a different light. The marijuana business offers excellent potential for profit, so much so that it has attracted the rich and famous of Nevada.

"There are a lot of people who are savvy business people who see this as an opportunity to make money," said Pete Krueger, president of the Nevada Medical Marijuana Association, a business group. "And God bless them, that's the American way."

ArcView Group, a San Francisco-based investing and market research firm for high-net-worth investors, estimated the national legal market (including recreational and medical marijuana) was $1.53 billion in 2013, according to Forbes. That's expected to grow to $2.57 billion by the end of 2014. Marijuana sales in Washington and Colorado — the two states where recreational marijuana is legal — is expected to pull in $316 million and $802 million, respectively, in 2014.

Sig Rogich, called the kingmaker of Republican politics in Nevada, is an minor investor in a dispensary that has already submitted an application in Clark County. Other investors for Clark County licenses include NFL Hall of Fame tackle Jonathon Ogden (who lives in Henderson), Las Vegas Sun publisher Brian Greenspun and former Speaker of the Assembly Richard Perkins, D-Henderson.

The real payoff for Nevada investors may come in 2016. Then, voters could be asked to approve recreational use of marijuana for adults through a petition process that has already started.

Those who are already operating a medical marijuana business would hit the jackpot if recreational use becomes legal, especially in a state where tourism is so vital to the economy.

"Because we are already an established tourist destination, we are anticipating the market is going to expand significantly" if recreational use is legalized, said Joe Brezny, executive director of the Nevada Cannabis Industry Association. "So the large payoff for the people who are looking at it from a pure investment comes under recreational."

If recreational use is legalized, one state senator predicts Las Vegas will become the "Amsterdam of the West," referencing the European city that has become the capital of cannabis tourism.

"If we are going to have legalized marijuana, people will come from all around the world to Las Vegas to smoke a joint, buy a T-shirt and gamble, too," said state Sen. Tick Segerblom, D-Las Vegas, a major proponent of legalized marijuana.

Others shake their head in disgust.

"The whole medical marijuana hoax — and now this (move to get recreational use legalized) — is based on the money," said Washoe County District Attorney Dick Gammick. "It is turning green into green. You have to remember that this is still a Schedule One controlled substance, which means it is subject to abuse. So what is the message we are sending to the kids? A total permissive society?"

"And I'm not a super history buff. but didn't Rome fall from the inside?" Gammick said. "I just don't know where we are going with all of this."

Already, the Lyon County Commission and the Boulder City Council have voted unanimously to prohibit dispensaries and grow houses.

"The main reason behind the (Lyon County) ordinance is that it is still a violation of federal law," said Lyon County Manager Jeff Page.

Unlike other states, which have set up their medical marijuana industry as nonprofits, Nevada's industry is strictly for profit. Out-of-state investors are welcome.

Nevada's law already may help tourism since it allows a medical marijuana cardholder from any state to buy pot in Nevada. That could become a large part of the customer base, since 21 states and the District of Columbia already allow medical marijuana.

Sixty-six dispensaries will be allowed across Nevada, including 10 in Washoe County, Reno and Sparks.

Washoe County, Sparks and Reno are moving forward with ordinances and zoning for the industry but are awaiting the state's lead in the application process. Reno and Washoe County approved the industry with unanimous votes.

The state will have a 10-day window to apply for licenses but has yet to announce it. It is required to give 45 days' notice before it accepts licenses, said Marla McDade-Williams, deputy administrator for the state Division of Public and Behavioral Health.

All applicants must first meet state approval, which includes a state and FBI background check on all investors who hold at least a 5 percent interest. Without state approval, no dispensary, grow house, testing lab or kitchen to cook edible marijuana products would be allowed.

Clark County's urgency

Sensing an urge to get into the game, Clark County has jumped ahead of the rest of the state in the application process for licensing of dispensaries and grow houses in its unincorporated areas.

Some are concerned some deserving applicants will be pushed out of the process in Clark County because of some applicants are well-connected to the government there. The 109 companies that made 206 applications for medical marijuana licenses in Clark County included lobbyists, real estate moguls, former state legislators, prominent doctors and lawyers.

"They are going to be able to employ lobbyists and all of those inside-political tactics," said Dave Damore, an associate political science professor at the University of Nevada, Las Vegas. "So if the average person, if they can put together an application and have the necessary cash reserves, they could still get knocked out."

Clark County Commissioner Chairman Steve Sisolak noted that the commissioners could be accused of favoritism in granting medical marijuana licenses.

Yet Sisolak denied favoritism will be given to the well-connected, adding applicants with and without political clout may not be successful.

"And some of these groups (of investors) are so large, I can't even tell you. So you are going to get people who are well-known in the political, philanthropic and business communities in Las Vegas," Sisolak said. "But I am meeting with every single group that has put in an application."

Expensive process

Besides the political process, simply paying for a medical marijuana license will likely knock many out of the process.

Nevada requires any applicant to have at least $250,000 in liquid assets per application. Some investors have estimated it may take as much as $1 million to operate a dispensary in the first year and $1.5 million to $2 million to operate a grow house.

Only 206 applied for licenses in for the unincorporated areas of Clark County. Some thought 2,000 or 3,000 would apply.

"About 2,000 of those people got into this and saw that it was far more complicated than they expected and far more expensive than they expected," said Brezny. "A lot of people saw the writing on the wall and saw they needed to peel off and be more realistic."

Sisolak said investors must be prepared to endure a potentially rocky start in the medical marijuana business.

"I don't think they can count on getting any revenue in the first three months or six months," Sisolak said. "I don't see that happening. I am not confident they will turn a profit quickly, so that is something else they (investors) have to look at."

Those who are approved in the Clark County process must still be approved by the state.

"We are not bound by their (Clark County's) review because of the merit-based ranking system," McDade-Williams said. "Our regulations require us to do that. So we won't accept applicants from the county. We will only accept them from the individual applicants."

Rogich said he invested in the industry because of what medical marijuana can do for people.

"Any relief these dispensaries can provide to those who must go through the excruciating pain of chemotherapy for cancer treatment is a plus," Rogich said in an email. "It's an effective form of relief that should be available to people who need it."

Another investor, Reno lobbyist John Sande III, said he studied the NuLeaf Clark Dispensary company before joining its investors. He called it "just another investment, I guess."

"I look at it from this standpoint: It will be very well-regulated, the Legislature set it up in the right way," Sande said. "Even the mayor (of Reno Bob Cashell), he came out and said one of his relatives was relying on it. It will be regulated like any other business. If you have a medical need, just go and get it."

Sande said Cashell's opinion means a lot to him and other Nevada investors. Cashell, whose granddaughter has a condition that can be helped by medical marijuana, declined comment for this story, citing privacy concerns of his family.

"All I know is that everybody I know has a great deal of respect for his honesty and the fact that he is willing to consider something if it is good," Sande said of Cashell. "And I feel the same way."

Push for recreational pot

Already, a group of Nevada medical-marijuana investors — the Campaign to Regulate Marijuana — has filed a petition with the Nevada Secretary of State to legalize recreational marijuana. The plan is to get the question on the 2016 ballot, if the petition gets the required 106,000 signatures statewide.

The petition sponsors are betting the 2016 election will have a heavy turnout in Nevada. Nevada is a presidential battle-ground state, and Senate Majority Leader Harry Reid, D-Nev., is up for re-election. That turnout — especially young people interested in voting for president — is expected to drive the recreational-marijuana petition to victory in the Silver State, Brezny said

"This is an issue that is easier than most to get people excited about because people have been waiting for 20 years to do this," Brezny said. "And now they see that we finally have a shot. It is really going to happen this time."

Gammick, who is strongly opposed to the legalization of marijuana, noted that others have tried to get marijuana legalized for recreational use in Nevada and have failed. Gammick said he fears, however, this time might be different.

"At one time, I would have said, absolutely not," Gammick said, referring to the change that recreational marijuana use might be legalized in Nevada. "And that has been proven. They have tried this, I think, about a half-dozen times by now. But now, with the change we have had in this state, with all of the out-of-staters that have come in, I won't bet one way or the other."

Investors and patients, however, both worry about the supply. Nevada law stipulates that only enough marijuana to accommodate the needs under state law will be allowed to be grown. Yet investors are concerned that the supply could run out because the demand will be intense, especially with out-of-state cardholders allowed to buy medical marijuana in Nevada.